Who’s really using your gift card?

Terms are more generous this year, but fraud risks are on the rise

KelliB. Grant

Gift cards are more popular than ever, but givers and receivers should still exercise caution: Fine print can trip up buyers, and fraud risks can limit recipients’ ability to use their gift.

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Sales of gift cards are expected to rise 10% this year to $110 billion, according to consulting firm CEB TowerGroup. These days, givers and receivers alike are more apt to see gift cards as a smart — not impersonal — choice, says Judd Lillestrand, chief executive of gift-card comparison site ScripSmart. “When you get somebody a gift that they really don’t want — like a horrible sweater — you just look terrible,” he says. The National Retail Federation anticipates 81.1% of shoppers will buy at least one gift card, up from 77.2% in 2009, and they’ll spend an average of $156.86, up from $139.91. On the recipients’ end, data indicates fewer consumers are letting their gift cards linger unspent, says Brian Riley, a senior research director with CEB TowerGroup. Just 1.6% of purchased gift card value will be left unused this year, down from 3.5% in 2009.

Part of what’s fueling the new popularity: more generous terms. Before the CARD Act of 2009, plenty of gift cards had tight expiration dates and irksome inactivity fees. Federal and state legislation in recent years has improved the situation, lengthening the time before expiration to at least five years and requiring disclosures of fees. As of Sept. 1, for instance, New Jersey law allows consumers to redeem gift cards for cash if the balance is less than $5. “Things that were a source of pain for consumers have largely gone away,” says Ben Woolsey, director of marketing and consumer research for comparison site CreditCards.com. Cards’ features have also come a long way. More issuers now offer conveniences like the ability to check a balance online, reload a card’s value, or store the card digitally on a phone, he says. Earlier this fall, American Express began allowing cardholders using its Membership Rewards app to redeem points on the phone for mobile gift cards at partners such as Gap and Williams-Sonoma. The gift cards could be spent immediately.

The gift card keeps on giving, but watch out...

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Who's really using your gift card? MarketWatch's Kelli Grant tells us terms are more generous this year, but fraud risks are on the rise.

But there’s a new risk on the horizon. The potential for fraud on gift cards — particularly stolen card numbers being used for online purchases — is a growing concern as their popularity and value increase, Riley says. Issuers’ systems can’t easily recognize a fraudulent transaction, because they don’t track buyer and recipient, he says. There’s no law requiring that they offer recompense, either. “These cards were never designed to be savings instruments,” he says. “Protections are not as clean for these cards as they are for your regular [debit and credit] cards.” According to ScripSmart, only a third of retailer-issued gift cards are replaceable if lost or stolen, and of those, nearly two-thirds require a receipt or other proof of purchase for a replacement. Riley suggests buyers include a receipt for the card when they gift it, and that recipients use their present quickly.

To get the most of cards, experts recommend that buyers review the details before purchasing. With more retailers offering digital as well as physical gift cards, it’s important for buyers to check the terms and conditions. That’s particularly true if they expect their recipient to be interested in shopping only online, or only in-store — some cards are limited to one platform, says Lillestrand. Just 72.8% of digital cards can be redeemed in-store, according to ScripSmart, while 79.6% of plastic cards bought in stores are usable online. It’s also still worth checking for the now-rare expiration dates and inactivity fees. General cards from bank issuers often still charge them, along with up-front purchase fees, says Woolsey.

Both givers and receivers may also be able to get a better value on their purchase from seasonal gift-card bonuses, which experts say get more prevalent every year. For example, The Children’s Place currently offers a free $10 e-gift card for every $40 in gift cards sent by Dec. 31, while T.G.I. Friday’s offers a $5 “bonus bites” card with a $25 gift card purchase. It’s free money toward a favorite retailer. Keep in mind, however, that many of the bonuses aren’t true gift cards — there’s often an expiration date, or a specific window during which they can be used, says Riley. “If you have multiple gift cards to that retailer, those are the ones to use first,” he says.

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